Grubb & Ellis on the Selling Block

Commercial real estate powerhouse Grubb & Ellis Co. (NYSE: GBE) is entertaining sale and merger offers. The Santa Ana, Calif.-based company has been in strategic negotiations with investor Colony Capital, which provided Grubb & Ellis with an $18 million loan earlier this year.

An exclusivity period ended May 29, however, and although Grubb & Ellis' talks continue with Los Angeles-based Colony Capital, the brokerage is now free to enter talks with other potential investors or buyers.

Grubb & Ellis hired JMP Securities in March to explore a potential sale or merger, followed soon after by the loan agreement with Colony Capital and the onset of the exclusivity period.

“[Now] that we have expanded the pool of potential strategic partners, the board and management are intent on bringing the strategic process to conclusion in a manner that creates value for all of our stakeholders,” says Thomas D'Arcy, president and CEO of Grubb & Ellis, in a written statement on March 31.

In February, Grubb & Ellis reported a net loss of $66.8 million for 2010 compared with a net loss of $78.8 million in 2009. This year the company has been attempting to improve its balance sheet and jettison less-profitable business units, including Daymark Realty Advisors.

On March 31, D'Arcy reported “significant progress” in the company's effort to sell Daymark. The subsidiary manages tenant-in-common programs in a 33 million sq. ft. portfolio that includes some 8,700 multifamily units.

Grubb & Ellis spun out Daymark in February and retained FBR Securities to market the subsidiary for sale. The business unit sustained operating losses of $6 million in 2010 and $17.5 million the previous year.

The parent company reduced corporate expenses by $10 million in 2010 from the previous year.

The transaction services group's earnings before interest, taxes, depreciation and amortization (EBITDA) climbed $10 million from the previous year on revenue that grew 46% from the previous year.

Management services was the company's profit leader with net income of $18.4 million in 2010.

On May 19, the New York Stock Exchange notified Grubb & Ellis that the real estate company was in violation of its listing standards, which require an average market capitalization of at least $50 million over 30 consecutive trading days, and shareholders' equity of no less than $50 million.

In April, Grubb & Ellis received a similar violation notice from the NYSE, this time due to its average closing price per share falling below $1 over a 30-day period. The company is developing plans to comply with both listing standards.

The longer it takes for Grubb & Ellis to find a solution, the less valuable the company will be to a buyer, wrote William Blair & Co. analysts Brandon Dobell and Tom Dillon in a March 28 research note.

“Competitors have likely already started assessing where the top talent in Grubb lies,” analysts conclude, “and whether it would be less expensive to buy an entire company, or unit, or simply hire away the best brokers.”